Monday, December 10, 2012

Why RIM Is Still A Bargain After 91% Rally

On November 13th, I published an article on my tech blog titled Here's Why It's Better To Buy RIMM Than AAPL Right Now.  I listed 6 reasons why RIM was a more attractive investment than Apple.
  1. BB 10 is appealing and unique; iOS 6 is boring and old
  2. BB 10 is on track to have more than enough apps
  3. Investor sentiment is near the bottom for RIM but near the peak for Apple
  4. Consumers are tired of Apple’s product cycles
  5. Valuation
  6. Technicals
At the time, RIMM closed on Nov. 12 at US$8.81.  Since then, the shares have rallied 34.85% (as of today's closing price of $11.88).  Meanwhile, AAPL closed at $542.83 on Nov. 12.  The shares closed at $529.82 today, which represents a fall of 2.40%.  

Despite RIMM's dramatic rally from its 52-week low of $6.22, the shares could still have much upside.

1) Technicals

RIMM continues to be in an uptrend.  Its RSI remains strong (at 69.30).  In addition, the 50 DMA is about to break above the 200 DMA in several days.  This is a bullish signal that is closely watched by traders.  When the Golden Cross occurs, more traders are likely to buy the shares.

2) Wave of Analyst Upgrades Likely

Several analysts have upgraded RIMM in the past two months, due to warm reception of BlackBerry 10 by the mainstream media, tech bloggers and carriers.  For example, analysts from Goldman Sachs, National Bank Financial and Scotiabank have upgraded the shares.  However, many analysts still have target prices of $8-$9, which is far below the current market price.  Thus, a wave of upgrades by analysts who are behind the curve would send the shares higher.

3) RIMM is Trading Far Below The Bullish Scenario

A few analysts, including Peter Misek from Jefferies and Gus Papageorgiou from Scotiabank, have outlined a bullish scenario in which RIMM could achieve EPS of over $4 in FY2014 and trade at above $40.  In my upside scenario of $3.5 in FY2014 EPS and 12X forward P/E, the shares would trade at $42.  This would represent an upside of 253.54% over today's closing price.  Thus, RIMM still has plenty of upside potential if the bullish case materializes.

No comments:

Post a Comment